Solar Value

[nicholz12]

I just finished an assignment involving proposed construction of new detached homes on a condo map that is being built for affordable housing. Apart from the affordable housing issue - which "alters" the fee simple interest - this project also has solar being added. Apparently a solar vendor is donating these units to the project (well, donating the costs that aren't paid for by the available grants and subsidies).

As this involves new construction it makes for a great case study because the comparisons involve new units of specific quality and condition, the combination of which eliminate most of the other variables other than with solar vs without solar.

I lucked out and found 2 projects of new construction and a comparable size that also include solar, albeit located in different municipalities. I was fortunate to find other non-solar projects in each of those municipalities that had similar sized units of recent construction and similar levels of quality; and I was able to interview the brokers for buyer reaction to this feature.

So, 2 with-solar projects involving 144 units vs 5 outside without-solar projects in the $550k - $650k range; and you know what the direct comparison revealed? That the premium the buyers were paying ranged from -$6,800 to zero per unit, depending on how strict I wanted to be with interpreting the resulting adjusted ranges. Meaning, the best case scenario *with these projects* was that the solar either added nothing to the value or resulted in a lower sale price (which I find hard to believe).

This was a direct comparison involving many sale transactions of new construction, uniform finishes, limited floorplans and comparable location attributes. Everything an appraiser could possibly ask for by way of matched pair and grouped comparisons. Direct evidence of buyer/seller reaction in the market that would *always* be weighted more heavily in an appraisal than some industry-advocate's excel-based DCF analysis.

My problem with the issue is that although the way this particular market segment reacted is not an uncommon reaction in this region, other market segments in this region occasionally react differently. I have to do this type of analysis every time I run into a unit with solar.

Do you think the negative adjustment was influenced/ attained for reasons such as;
1. credits will be disappearing next year,
2. out past history i.e. 70's run with solar never amounted to much,
3. electric companies demanding reduced returns or adding fees to the bill or perhaps repair of the these systems and
4. people are concerned that once these credits disappear, so go the solar companies,
5. or it's a fledgling industry/ wait and see attitude by the public,
6. or combination of all of the above.

 

[George Hatch]

In that analysis I didn't apply any adjustment either way because the nominal mode among these sales was basically zero.

As for reasoning, I generally don't try to ascribe motivations for adjustments beyond simply noting their presence. *In my personal opinion* I think "#5 - fledgling industry + wait/see attitude by the public" might be the dominant factor, although I don't have hard data for that. And as such I would never say that in an appraisal report.

 

[nicholz12]

In that analysis I didn't apply any adjustment either way because the nominal mode among these sales was basically zero.

As for reasoning, I generally don't try to ascribe motivations for adjustments beyond simply noting their presence. *In my personal opinion* I think "#5 - fledgling industry + wait/see attitude by the public" might be the dominant factor, although I don't have hard data for that. And as such I would never say that in an appraisal report.

Interesting, if you have any other information in the future I'd be interested in hearing about it. Thanks.

 

[George Hatch]

I should note that the sales data in question had pricing ranging from $570k - $650k. At the very most, a $6800 adjustment / $610k median sale price would only have amount to a 1.1% adjustment. I think it fair to say that whether any appraiser did or didn't apply such an adjustment in either direction it wouldn't have significantly altered their value conclusion within the context of a loan decision.

 

[nicholz12]

I should note that the sales data in question had pricing ranging from $570k - $650k. At the very most, a $6800 adjustment / $610k median sale price would only have amount to a 1.1% adjustment. I think it fair to say that whether any appraiser did or didn't apply such an adjustment in either direction it wouldn't have significantly altered their value conclusion within the context of a loan decision.

Good point.